The mystery of India’s new solar tariffs

On April 1, India slapped tariffs on solar cells and modules. This wouldn’t be newsworthy except that India made these tariffs out of whole cloth. This is as audacious as protectionism gets.

Tariff hikes in India are not uncommon. Over the last eight years, Prime Minister Narendra Modi has increased 3,000 tariffs, hitting 70 percent of the country’s imports. Tariffs are front and center in Modi’s drive to make India more economically “self-sufficient.” They also add central budget revenue. But even against this backdrop, the new solar tariffs are striking.

Like many countries, India is keen on renewables. Modi hopes to produce half the nation’s electricity from renewables by 2030, mostly wind and solar. More impressive still, India wants to achieve net-zero emissions by 2070. To reach these goals, India has lavished protectionism on its domestic producers. Antidumping duties and safeguards have given these producers some much-needed breathing room, particularly against cheap imports from China. But these temporary tariffs have expired. No one doubted the government would fill in with new tariffs. But not like this.

Here’s the mystery.

The solar cells fall under tariff code 85414011, and the modules under 85414012. Look at India’s World Trade Organization (WTO) obligations and you’ll see that both tariffs are bound at zero. In other words, India has no tariffs to increase on solar cells or on modules. Quite simply, India’s 25 percent tariff on cells, and 40 percent tariff on modules, are pure fiction.

India calls tariffs basic customs duties, not trade remedies. There’s no evidence that India conducted an antidumping or a safeguard investigation that could have triggered temporary tariffs. So again, where did India’s solar tariffs come from?

India also has non-tariff barriers on solar. Most famously, it’s Approved List of Models and Manufacturers favors domestic over foreign solar. Given these non-tariff barriers, it’s not obvious India needed two new tariffs to backfill for its recently expired safeguard.

Conversely, if India was intent on defying its WTO obligations, why not go bigger than 25 percent and 40 percent? The answer is that the tariffs, on top of COVID-19-related price spikes, will hurt solar sales. Import duties make solar panels more expensive, but domestic companies find it difficult to compete without protectionism.

There was no need for India to make these solar tariffs out of whole cloth. An antidumping duty would have done the trick. India is the world’s most prolific user of antidumping duties, and China the world’s number-one target. Yet another antidumping duty wouldn’t have been noticed.

But the global economy should notice this. India’s new solar tariffs are a big deal because they are as obvious an infraction as could be. What will other countries infer from this? That India is rewriting its WTO tariff obligations? That all is fair game in competing over renewables? Or just when China is the source of cheap imports?

For whatever India intended to signal by making solar tariffs out of whole cloth, the move was too clever by half.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University. Follow him on Twitter @marclbusch.